You’ve been laid off: it’s time to start the business you’ve always dreamed of. According to a recent article in Time Magazine, unemployment in many states has reached 10% or higher. Frustrated at not being able to find a job and with no prospects looming, many people are considering starting their own businesses. And they would be in good company. General Electric, Walt Disney, Microsoft and Google were all begun in recessions. The author discusses the critical questions a perspective business owner needs to ask, including: How do I determine if what I love to do is a viable business? How do I figure out if this is financially and psychologically feasible?
The first two steps someone who’s starting a business needs to take are:
1.Decide if you are committed. Are you ready to make the daily commitment to the business? Or do you just want to date occasionally? If you’re ready to make the commitment, then you’re ready to take the second step, which is:
2.Do your numbers to make sure you can support yourself with the business.
Most people aren’t able to just quit their day jobs one day and start a business that will support them out of the gate the next day. Some people can, but most businesses need some ramp-up time. Before the ramp up, figure out the answers to these questions:
1.How much money do you need to live on? Don’t forget your taxes; you might need $5,000 per month to live on, but that means you need to earn $7,000-$9,000 per month to make sure you can pay your taxes.
2.How many “things” do you need to sell to make your monthly expenses?
Here’s an example. Our business owner needs to earn $10,000 per month. She makes organic bath products that sell for an average of $25.00 each. The materials cost $5.00 each, so she clears $20.00 per product. $10,000 divided by $20.00 is 500 products per month that she need to sell. Is that do-able? What will it take for her to sell this much per month?
3.How much time does it take you to make the number of things you need to sell?
Here’s the next example. Using our same person above, it takes her 30 minutes to make one product. This means that to make 500 products per month, it will take her 250 hours. There are only 176 working hours in a month, so 250 hours is a problem. She will have to find help or outsource the manufacturing of her products to a company.
Here’s another example. A person who cleans houses also needs to make $10,000 per month. He charges $50 per hour, so he needs to work 200 hours to make his $10,000. This won’t work either-he either has to raise his rates or get help or lower his expenses.
If you’re ready to commit, and your basic calculations work out (you can make/sell enough per month to cover your bills), then go out and talk to some potential clients. If you get “positive feedback from the marketplace,” keep going!
Christy Strauch is the author of Passion, Plan, Profit: 12 Simple Steps to Convert Your Passion into a Solid Business. In addition she is president of Clarity To Business and has worked with over 300 small business owners, from artists to real estate agents, helping them do what they are passionate about – and make a profit. Her book is available at Amazon.com
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